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Judge Throws Out Gravest Charge in Stewart Trial - 2004-02-27

The judge presiding over the trial of Martha Stewart has dropped the most damaging charge, securities fraud, against the media and home decor tycoon.

Martha Stewart was accused of trying to deceive investors in her own media firm when she denied allegations that she had sold shares of the drug company, Imclone, based on insider information. Such activity is illegal and the prosecution argued that Ms. Stewart's comments were aimed at keeping up the stock price of her company, Martha Stewart Living Omni-Media.

Now U.S. District Judge Miriam Goldman Cedarbaum has thrown out the charge, which carried a potential 10 year prison sentence and a $1 million fine. Judge Cedarbaum said the evidence presented by the government was too weak to prove "criminal intent." In her 23-page ruling, Judge Cedarbaum said "no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market value of the securities of her company."

Ms. Stewart's attorneys said in a statement that they were pleased with the judge's decision.

Fordham University Law Professor James Cohen says most legal experts expected the judge to dismiss what has been described as a novel use of the securities fraud charge. "The Securities Fraud statute was designed to cover more closely insider trading, that is when you trade based on insider information. And that is not the theory that the government used to show a fraud here," he said. "The theory that the government used here was that her protestations of innocence were done in order to keep the stock from falling or to maintain it or to make it grow and that is not a theory that has ever been adopted by a a court before."

Ironically, Mr. Cohen says dismissing the securities fraud charge could well help the government's case by allowing the jury to focus exclusively on the other counts. Ms. Stewart still faces charges of conspiracy, obstruction of justice and two counts of lying to investigators. If convicted, the she could receive up to five years in prison and a $250,000 fine.

Final arguments and jury deliberations are scheduled for next week.

Prosecutors argue that Ms. Stewart is lying when she says she had arranged in advance to sell about $200,000 worth of ImClone shares if the stock dropped to $60. The prosecution says the real reason she sold was that her broker Peter Bacanovic, told her ImClone founder Sam Waksal was selling off his own shares. Mr. Waksal is now serving a seven-year prison sentence on charges including securities fraud.